Opinion
Docket Nos. 34010 14013.
1953-08-14
ESTATE OF LOUIS RICHARDS, DECEASED, CELIA LESSER, EXECUTRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.ESTATE OF LOUIS RICHARDS, DECEASED, AARON RICHARDS, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Samuel Taylor, Esq., Andrew Kopperud, Esq., and Walter G. Schwartz, Esq., for the petitioners. Edward H. Boyle, Esq., for the respondent.
1. Upon the record it is held that a trust created by the decedent is not includible in his gross estate as (a) a transfer in contemplation of death within section 811(c)(1)(A), Internal Revenue Code, or (b) as a transfer in trust in respect of which the grantor retained the right to income for life within the purview of section 811(c)(1)(B), Internal Revenue Code, or (c) as a conveyance of insurance policies in trust in which the decedent at the time of his death possessed incidents of ownership within the meaning of section 811(g)(2)(B), Internal Revenue Code.
2. An allowance of $30,000 by the probate court for support of decedent's surviving spouse during the period of administration held reasonable and a proper deduction from the gross estate.
3. The total value of a parcel of real estate and a bank account held by decedent and his surviving spouse as joint tenants held includible in the gross estate.
4. The amount of $130 allowed by the probate court as expense of administration held a proper deduction from the gross estate and an amount of $163 paid by the executors with respect to a trust estate not constituting a portion of the gross estate held not to represent an indebtedness of the estate and consequently not deductible. Samuel Taylor, Esq., Andrew Kopperud, Esq., and Walter G. Schwartz, Esq., for the petitioners. Edward H. Boyle, Esq., for the respondent.
Respondent has determined a deficiency in estate tax against the estate of Louis Richards, deceased, in the sum of $18,336.94. The same deficiency has been asserted separately against the executor and executrix of decedent's estate, Aaron Richards and Celia Lesser. Identical petitions have been filed in each case and the two proceedings have been consolidated for hearing and opinion. Each petition asks a finding of overpayment in the sum of $15,368.21. There are six pending transferee cases related to these proceedings, representing liabilities asserted against petitioners therein as distributees of the estate of Louis Richards.
These proceedings were not consolidated for hearing with the two proceedings here considered, but the petitioner in each of these proceedings has filed a stipulation conceding a liability as transferee for any deficiency determined herein against the estate of the decedent.
Estate of J. H. Lesser, Deceased, Lawrence Simon, Executor, Docket No. 34007; Celia Lesser, Docket No. 34008; Celia Lesser, Docket No. 34009; Aaron Richards, Docket No. 34011; Aaron Richards, Docket No. 34012; Joseph Kay, Docket No. 34044.
The issues presented are:
(a) Whether the corpus of a trust created by the decedent is includible in the gross estate as a transfer in contemplation of death within section 811(c)(1)(A), Internal Revenue Code.
(b) Is such trust corpus includible under section 811(c)(1)(B), Internal Revenue Code, as a transfer in trust in respect of which the grantor retained the right to income for life?
(c) Is such trust corpus includible in decedent's gross estate as a conveyance of insurance policies in which decedent at the time of his death possessed certain incidents of ownership, within the meaning of section 811(g)(2)(B)?
(d) Does $22,500 allowed by respondent constitute a reasonable deduction from the gross estate for the support of dependents during the settlement of the estate, or $30,000 allowed by the probate court and deducted in the estate tax return as filed?
(e) Are the total values of a parcel of real estate and bank account held by decedent and his surviving spouse as joint tenants includible in the estate under section 811(e), Internal Revenue Code, or only one-half of such amounts?
(f) Should the estate be allowed a deduction of $130 allowed by the probate court for expenses of administration, and $163 paid by the executors to the trustee of the trust here involved?
Certain of the facts have been stipulated and are so found. Additional facts are found upon the evidence presented at the hearing.
FINDINGS OF FACT.
The petitioner herein is the estate of Louis Richards, who died testate in the county of Santa Clara, California, on November 7, 1946. Aaron Richards and Celia Lesser are the duly appointed and acting joint executors of said estate.
The decedent, Louis Richards, was a man who had received no school education but one of intelligence who had amassed at the time of the transactions hereinafter detailed a substantial fortune. Together his son, Aaron Richards, he operated a supermarket at San Jose, California, and possessed other interests.
In 1931 the decedent and his son, Aaron Richards, were approached by one Levy, a securities salesman for the Anglo & London Paris Company, which was a securities company affiliated with the Anglo & London Paris National Bank. At this time the country was in the depths of a severe financial depression. Levy had had prior dealings with decedent and his son and had been requested by the trust department of the aforementioned bank to contract his clients and endeavor to bring in trust business to the bank. Upon his questioning decedent as to whether or not he would care to create a trust of certain of his property, the latter advised him that he was disturbed about the state of the securities market and that he did desire to create a trust in favor of his wife which would guarantee her support, such trust to be of a character that would place the corpus beyond his reach and not subject to the risks of his business. At this time the decedent was a man in good health and active in business. Levy thereupon advised the decedent with respect to a form of trust which the bank had devised, the corpus to be composed of life insurance, and that the bank under such trust would agree to charge only a nominal fee for the setting up of the trust and make no charges for its services in performance of its duties as trustee. Its only compensation was to be through a provision of the trust instrument giving the authority to deal with the trust funds and investments through an affiliated securities company or other company it might nominate. It was anticipated by the bank that it would receive compensation in the way of commissions earned on such business which would justify its performance of trustee services at no cost. The decedent was further advised that the form of trust contemplated being irrevocable, there would be certain tax benefits resulting upon his death.
As a result of this contact and explanation by Levy, the decedent agreed to execute such a trust and convey to it 11 life insurance policies on his own life which he held and in each of which his wife was named as beneficiary.
Thereupon the trust department of the bank drafted a form of trust which, after certain changes made at the direction of decedent and his son, Aaron Richards, was executed by decedent on April 30, 1931. By the trust instrument the 11 insurance policies in question, which were listed on a schedule made a part of the trust instrument, were provided to be transferred to the trustee and upon the death of the grantor the proceeds of these insurance policies were to be invested by the trustee and the income from the trust corpus paid to the decedent's widow for life with certain provisions authorizing the trustee in case of necessity to invade corpus for the benefit of such beneficiary. On the death of the primary beneficiary the trust should terminate and the corpus of the trust be distributed to the trustor's four children. No reversion was retained in the trustor.
The trust provided that the trustor or the beneficiaries would pay the premiums on all the policies conveyed to the trust, and that the trustee should be under no obligation to see that such premiums were paid or to pay the same.
The trust further provided as follows:
ARTICLE II.
The Trustee's powers and duties with reference to the collection of the proceeds of the insurance policies shall be as follows:
(a) Upon the death of the Trustor the Trustee is authorized to collect the proceeds of insurance policies then payable to the Trustee and to do all things necessary or expedient thereto, and make such agreements of settlement of any policy or action thereon as it deems advisable; provided, however, that the Trustee shall not, except at its option, enter into or maintain any litigation to enforce payment of any policy unless and until it shall have been indemnified to its satisfaction against all expenses and liabilities which may be incurred therein. The receipt of the Trustee shall release any insurance company from all liability upon any policy deposited hereunder.
ARTICLE III.
The Trustee's powers, rights and duties with reference to the investments and management of the trust estate after the death of the Trustor shall be as follows:
(a) The Trustee may, in its discretion, purchase from the estate of the Trustor any of the assets thereof at their appraised value, whether or not such assets would constitute proper trust investments and may continue to hold any such assets as long as in its judgment it is advisable to do so.
(b) The Trustee shall have full power to sell, convey, invest, reinvest, convert, control and manage all of the trust estate upon such terms and under such conditions as in its judgment may seem best and proper, subject to the approval of AARON RICHARDS or, upon his death, some other party to be designated by the beneficiary.
(c) The Trustee shall be limited in investing trust funds to bonds which are legal investments for trust companies, carrying a rating of ‘AA‘ in Moody's Manual, and approved by AARON RICHARDS or, upon his death, by some other party designated by the beneficiary hereunder.
All bonds and securities purchased as investments for trust funds shall be purchased thru the Bond Department of The Anglo & London Paris National Bank of San Francisco or such bond company as trustee shall designate.
(d) The Trustee shall collect, receive and receipt for all income, gains, and profits from and upon the property held in trust and shall pay therefrom or from the principal of the Trust Estate, if necessary, any taxes, fees or expenses reasonably paid or incurred by the Trustee in the administration of the Trust Estate.
The trust further provided:
The Trustor shall deliver the said policies and any additional policies which may hereafter be added to the Trust Estate to the Trustee and the Trustee shall hold the same for safekeeping.
The said insurance policies, together with any additional policies which may hereafter be made payable to the Trustee, and the proceeds thereof received by the Trustee shall constitute the Trust Estate and shall be held by the Trustee in trust subject to all of the provisions of this agreement.
The trust agreement carried as a part thereof a statement signed by the wife of the trustor, reading as follows:
I, SARA R. RICHARDS, wife of the Trustor in the foregoing agreement which I have read and understood, in consideration of the provisions of the said agreement, od hereby consent to and approve the same in all particulars and do hereby waive and assign to the Trustee, for the purposes of said trust, any community or other interest that I may now have or may hereafter acquire in and to any policies placed in said trust or the proceeds thereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of April 1931.
The foregoing certificate by Sara R. Richards was formally notarized.
Following the execution of this trust agreement, the 11 policies of life insurance listed on the schedule attached to the trust agreement were sent to the respective insurance companies issuing them, and the beneficiary of each was changed to the Anglo & London Paris National Bank, Trustee, ‘under trust agreement bearing date of April 30, 1931 executed by the insured under the policy, and ANGLO & LONDON PARIS NATIONAL BANK, Trustee WITHOUT the right of revocation.‘
Following the change of beneficiary under the said 11 policies, such policies were delivered to the trustee by the decedent and held by it under the provisions of the trust.
After the transfer of the aforesaid policies in trust the decedent continued to pay premiums thereon but prior to October 15, 1940, ceased payment of premiums, and thereupon the 9 life policies were converted into paid-up policies of insurance for the amount of such insurance as was purchasable with the premiums theretofore paid and which continued to be held by the trustee as paid-up policies in their then amounts which in each case was less than the original face of the policy. These 9 life policies were nonparticipating, but upon their conversion into paid-up policies, with the exception of 3 policies with The Columbian Life Insurance Company, became participating policies upon which dividends were paid. Of these 6 remaining policies, 5 were issued by the Mutual Benefit Life Insurance Company and the remaining one by the Metropolitan Life Insurance Company. In the case of the Metropolitan Life policy, the dividends accrued were retained by the company and an increase in the amount payable on the death of the insured computed thereon. In the case of the 5 Mutual Benefit policies, the dividends which accrued were paid by the company to the decedent instead of to the trustee who held the policies. No effort was made by the decedent to account to the trustee for these dividends nor did the trustee make any demand that they be paid over to it as income from the trust estate.
Two of the 11 aforementioned policies of life insurance, 1 with the Pacific Mutual Life Insurance Company and 1 with the Metropolitan Life Insurance Company, each in the face amount of $5,000, were endowment policies and these policies matured in 1939, the principal amount thereof becoming payable at that time. In 1931, at the time of the change of the beneficiary of the 11 policies to the trustee, the aforesaid Pacific Mutual endowment policy, when sent in to that company and the beneficiary changed in accordance with directions, had been returned by the company to the decedent with a certificate for execution by him reciting the formal assignment of the policy to the trustee, which assignment was executed by the decedent. In the case of the other 10 policies, no separate instrument of assignment was executed, the policies being merely changed as to the beneficiary and delivered to the trustee.
Upon the maturing of the 2 endowment policies in 1939 the Pacific Mutual delivered to the trustee its check for $5,000, representing the proceeds of that policy. The Metropolitan Life Insurance endowment policy contained certain options for settlement in addition to cash payment, and upon its maturity the company notified decedent and directed its local agent to contact him and obtain from him a direction as to what option of settlement was desired, one of these being a paid-up annuity contract with income at a stated amount, the principal sum to be payable at death.
At the time the 2 endowment policies matured the trustee had for 8 years held the insurance policies but no duties beyond that had been performed or necessary, as no income had been received or any other thing transpired necessitating action on its part, and upon the receipt of the check from the Pacific Mutual Life Insurance Company the trust was examined by its trust officer, who had not been with the bank at the time of the creation of the trust, and a condition was found by him which was disturbing and very unsatisfactory to the bank. It appeared that a few years after the creation of the trust the State of California had passed legislation forbidding a trustee in investment of trust funds to deal with itself or an affiliate. The result of this had been to make the trust, insofar as the bank was concerned, one in which it could only perform service but could receive no compensation, as its only source of individual income as trustee was limited by the express terms of the trust to the exercise of powers which the law now forbade.
With this situation facing the trustee, Aaron Richards, representing the decedent, requested that the $5,000 received from the Pacific Mutual Life Insurance Company be paid by the trustee over to the decedent, who would substitute therefor certain shares of stock in a security company of a value in excess of $5,000. The trustee thereupon submitted the matter of the 2 matured endowment policies to its legal counsel and asked advice as to its duties under the circumstances, and was advised that it would not be proper to permit withdrawal or substitution of any of the assets in the corpus of the trust without first getting in writing the agreement to such action by the trustor and all of the beneficiaries of the trust. The trustee thereupon prepared such a request with respect to the substitution of corporate stock for the $5,000 in cash which it held, and this was signed by the trustor and all of the beneficiaries and the substitution effected. No such action was taken by the trustee with respect to the matured Metropolitan endowment policy. The representative of that company had called upon the trustor and the latter had desired payment of this policy by way of an annuity contract permissible under the options granted. Upon the trustee being notified of this it prepared a letter for signature by the trustor directing it to withdraw from the trust fund the Metropolitan policy and to transmit such policy to the insurance company for the issuance to the trustor of an annuity contract, and upon this letter being signed and returned by the trustor such policy was delivered by the trustee to the insurance company. In turn, that company issued a paid-up annuity contract and delivered it to the transferor, by whom it was retained. The annual payments of income on such contract were thereafter made to the trustor and received by him as his income, and the proceeds of the contract were paid to his estate upon his death and were included in the gross estate and are not involved in this proceeding.
Subsequent to the events herein detailed, Aaron Richards approached the trustee and asked to withdraw the stock which had been substituted for the $5,000 received from the Pacific Mutual Life Insurance Company and to substitute for such stock 150 shares of stock of the Standard Oil Co. of California, the value of which was in excess of $5,000 and in excess of the market value of the corporate stock for which it was asked to be substituted. Such substitution was made by the trustee. In the case of both of these substitutions of corporate stock for trust assets, the stock certificates were endorsed in blank and delivered to the trustee, and in neither instance did the trustee forward these certificates to the corporation for transfer on its books. Subsequently dividends paid on the security company stock and the Standard Oil Stock, while held by the trustee were continued to be paid to the transferor as record owner of the stock. The trustee neglected to make the transfer and permitted the income from the trust asset in each instance to be received and used by the trustor as well as the Metropolitan annuity contract and the annual income therefrom, for the reason as stated by its trust officer that its receipt of such income would have meant the assuming of responsibilities and the performance of trust activities for which it would have received no compensation.
Immediately after the death of decedent the trustee collected the proceeds of the 9 insurance policies remaining in its possession, secured permission to resign from its unwanted position as a payless trustee, and the court substituted Aaron Richards and Celia Lesser, son and daughter of the decedent, as trustees upon petition by all the beneficiaries of the trust requesting such action.
The transfer of the 11 insurance policies in trust by the decedent hereinbefore detailed was not a transfer by him in contemplation of death within the purview of section 811(c)(1)(A), Internal Revenue Code.
Upon the probate of the will of decedent the court was petitioned for the allowance to his widow of $1,500 per month from the estate during the period of administration as an allowance permitting her to live in the same manner to which she had been accustomed during decedent's life. Such allowance was approved by the probate court and was paid for a period of 20 months from the date of decedent's death, in a total of $30,000, such payments terminating July 7, 1948, and the decree of the court settling the final account of the executors and the final distribution of the estate filed on October 1, 1948, allowed and approved the expenditure of this sum. The payment of this allowance terminated prior to the filing of the Report of Inheritance Tax Appraiser which was filed July 13, 1948. Under California law no distribution of the estate can be made prior to the payment of inheritance taxes, which are determinable on the basis of the inheritance tax report.
There was no delay in settling the estate of the decedent in order to prolong the family allowance. The amount of $1,500 a month was reasonable and was less than the amount expended by the decedent's widow for her maintenance and support during the time such allowance was paid.
The decedent and his widow, Sara Richards, held as joint tenants at the time of his death a personal residence valued at $27,373.60 and a bank account of $3,794.68. This joint tenancy property was derived originally from community property received as compensation for personal services rendered by the decedent after July 19, 1927.
In the administration of the estate $130 was allowed and paid to Aaron Richards, as joint executor, as the cost of various incidental expenses in connection with the winding up of the estate and distribution of assets.
The sum of $150 was paid by the estate to the trustee of the trust hereinbefore mentioned as a fee in connection with its resignation as trustee and the appointment of successor trustees. The sum of $13 was expended by the aforesaid trustee and charged against the trust account. These expenditures represented the cost of notarial fees, revenue stamps, and death certificates.
OPINION
BRUCE, Judge:
With respect to the inclusion in gross estate of the value of the inter vivos trust created by the decedent, respondent's primary contention is that it falls within section 811(c)(1)(A), Internal Revenue Code,
as a transfer in contemplation of death. The question as to whether the transfer is of such character is one of fact, and our finding that the transfer was not in contemplation of death answers respondent's contention.
SEC. 811. GROSS ESTATE.The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property. * * *(c) TRANSFERS IN CONTEMPLATION OF, OR TAKING EFFECT AT, DEATH.—(1) GENERAL RULE.— To the extent of any interest therein of which the decedent has at any time made a transfer * * *(A) in contemplation of his death; * * *(B) under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (i) * * * the right to the income from, the property, * * *(e) JOINT AND COMMUNITY INTERESTS.—(1) JOINT INTERESTS.— To the extent of the interest therein held as joint tenants by the decedent and any other person, * * * except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth; * * *(2) COMMUNITY INTERESTS.— To the extent of the interest therein held as community property by the decedent and surviving spouse * * * except such part thereof as may be shown to have been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse. * * *(g) PROCEEDS OF LIFE INSURANCE.—(2) RECEIVABLE BY OTHER BENEFICIARIES.— To the extent of the amount receivable by all other beneficiaries as insurance under policies upon the life of the decedent * * *(B) with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. * * *
We think our conclusion upon this question is amply supported by the record. The trust in question was one created by the decedent more than 15 years prior to his death and at a time when he was in good health and actively carrying on his business. The circumstances attending the creation of the trust are fully set forth in our Findings of Fact. Its creation was solicited by the trustee who wished trust business. On being approached, the decedent advised the representative of the trust company that he did desire to create a trust of certain of his property for the benefit of his wife for the purpose of guaranteeing her support. The decedent was disturbed about the conditions existing, as the country was at the time in the depths of a severe financial depression. He stated to the representative of the bank that he wished a trust so conditioned that the property conveyed would be beyond his power to use or encumber and no longer be liable for risks incident to his business. The trust instrument as drawn by the trust officer was to meet this definite announced purpose.
We see in this a dominant purpose connected with life and not with death. It is true that the corpus of the trust consisted of insurance policies upon decedent's life, and it is realized that when property of this character is transferred in trust there must necessarily be in contemplation to some extent the fact of the death of the trustor and the conditions which will then be met, and it may well be that an insurance trust will by reason of the character of the trust be held as one made in contemplation of death in the absence of evidence establishing another dominant motive. Estate of Paul Garrett, 8 T.C. 492, affirmed in part, 180 F.2d 955. In that case Judge Learned Hand, speaking for a majority of the court, said:
A conveyance of property which the grantee can by no chance use until the grantor's death, will so commonly be in the main testamentary, that it is fair to infer that that was its preponderating, if not indeed its only, purpose, unless there be affirmative evidence of other contributory motives. * * *
Here we think it has been affirmatively established by clear and convincing evidence that the decedent's dominating motive and purpose in creating the trust was to provide security for his wife by placing the property conveyed in trust beyond risk through hazards of his business. This is a motive connected with life, not death. In this connection see Estate of Wilbur B. Ruthrauff, 9 T.C. 418, and Estate of Verne C. Hunt, 14 T.C. 1182.
Respondent further contends that the trust corpus is includible under section 811(c)(1)(B), Internal Revenue Code, on the ground that decedent retained the right to the income therefrom for life.
An examination of the trust instrument shows that it is specifically made irrevocable and no reversion or right to income is retained under its terms. Respondent, however, argues that assignment of the policies in question was never completed by the decedent. It supports this argument by calling attention to the fact that only 1 of the 11 policies of insurance was formally assigned to the trustee by a specific instrument of assignment. In the case of the other 10 policies the trustee was substituted as beneficiary without power of revocation and the policies were physically delivered to the trustee. He also points to the fact that 1 endowment policy upon its maturity was withdrawn from the trust by the decedent with the permission of the trustee and converted to an annuity contract from which the decedent drew income until the time of his death and the proceeds of which were paid to his estate; and that in the case of 9 paid-up participating policies dividends were paid to and received by the decedent without objection on the part of the trustee.
Upon the question as to whether there was in fact a complete assignment of the insurance policies by the decedent to the trustee, the answer is to be determined by the law of the State of California. Estate of Louis J. Dorson, 4 T.C. 463. The most recent decision in a California court appears to be that in Mahony v. Crocker, 58 C.A.2d 196, 136 P.2d 810. This was a decision by the California District Court of Appeals, with petition for a rehearsing denied by the Supreme Court of California. In this case, as in the case at bar, the decedent transferred in trust certain insurance policies on his life, the trustee being substituted as beneficiary and the policies physically delivered to such trustee. On these facts the court held that by the substitution as beneficiary under conveyance in trust the insured waived irrevocably his right to again change the beneficiary, and that this fact, coupled with the physical delivery to the trustee of the policies, constituted an assignment as effective as if it had been carried into effect by a formal instrument of assignment. Respondent cited no California decision in conflict with the Mahony case. In Anna Rosenstock, 41 B.T.A. 635, we held that there was an irrevocable assignment under New York law where the insured named his wife beneficiary of certain policies of insurance and delivered them to her without executing a formal instrument of assignment. See also Louis J. Dorson, supra. We accordingly hold that there was an irrevocable assignment by the decedent of the 11 policies here in question to the trustee.
This brings us to the question of the withdrawal of one of the insurance policies by the trustee from the trust estate and the receipt by him of certain dividends on participating policies paid by the insurance companies and dividends on stock held by the trustee. Respondent argues that these conditions definitely establish that the intent under the trust instrument was to retain the income from the trust estate to the decedent for life, and that during this period the trustee was intended to be no more than a depositary of the policies.
It is difficult to reconcile this argument with the specific provision of the trust instrument making it irrevocable and providing that:
The said insurance policies, together with any additional policies which may hereafter be made payable to the Trustee, and the proceeds thereof received by the Trustee shall constitute the Trust Estate and shall be held by the Trustee in trust subject to all of the provisions of this agreement.
The Trustee shall collect, receive and receipt for all income, gains, and profits from and upon the property held in trust and shall pay therefrom or from the principal of the Trust Estate, if necessary, any taxes, fees or expenses reasonably paid or incurred by the Trustee in the administration of the Trust Estate.
As stated in our Findings of Fact, subsequent to the creation of the trust the trustee was precluded by statute from deriving the income which it had contemplated to be received as compensation for acting as trustee, and the express terms of the trust provided for the payment of no other compensation. The mere fact that the trustee was denied compensation for the exercise of its duties and responsibilities as trustee did not relieve it from such duties and responsibilities. It appears clear from the testimony of the trust officer of the corporate trustee that it was anxious to avoid the receipt of income and to avoid any other condition which would require performance of duty on its part for which it could not charge a fee. It consequently welcomed any arrangements by which it could avoid the receipt of income and the necessity to invest and account for the same. In fact, with respect to its permission for the withdrawal of one paid-up endowment policy from the corpus, it is shown to have acted squarely against the advice of its counsel.
The disregard by the trustee of its clear duties as such is illustrated by its action or lack of action with respect to corporate stock which it permitted the decedent to substitute for cash paid it upon maturity of one policy. In this case it did secure from the decedent and all of the beneficiaries of the trust a joint request to permit such substitution, but the stock delivered to it was endorsed in blank, was unquestionably its property as trustee with all the rights incident to such ownership, and yet it took no steps to present stock certificates for transfer on the corporate books to its name but permitted them to stand untransferred and the dividends in consequence to be paid direct to the decedent who was no longer the owner. The trustee seems to have recognized the impropriety of such action and attempted to secure an agreement from the decedent which would permit it to charge a fee which was precluded under the terms of the trust. It stated that if such agreement was made it would then transfer the stock on the corporate books and charge the agreed fees and expenses against the income. No agreement being secured to this suggestion, the trustee merely ‘let sleeping dogs lie,‘ and allowed the dividend income for which it was in fact responsible to be paid to decedent.
We can see as a result of these conditions nothing more than an utter disregard by the trustee of its duties and responsibilities as such. We see no ground to assume on these facts that it was not intended that the trustee assume such responsibility but that the decedent, as transferor, should receive during his lifetime such income as was realized by the trust estate.
We accordingly see no ground for the application of section 811(c)(1)(B), nor do we see any grounds for concluding that the decedent possessed at death any incidents of ownership to justify the application of section 811(g)(2)(B). It is argued by respondent that the decedent exercised the right to take income from the trust corpus. It is unquestionably true that the decedent did take such income, but we fail to find a right on his part to do so. This result was not brought about through an exercise of a legal right on his part but directly as a result of a failure on the part of the trustee to exercise its responsibilities as such. In Estate of Louis J. Dorson, supra, the trustor, after an irrevocable assignment of the policies in trust, obtained and used for his own benefit some of the dividends paid thereon, and we held that such condition was immaterial to disturb the conclusion that the assignment was complete and that such dividends were in fact the property of the trust estate.
We hold the corpus of the trust here involved not includible in decedent's gross estate, and respondent's action is reversed.
In the administration of the estate of the decedent the probate court allowed the sum of $1,500 per month as an allowance from the estate for the support of the widow during the administration of the estate. Under such allowance the total sum of $30,000 was paid over a period of 20 months and approved by the court. Respondent, in determining the deficiency, reduced this allowance to $22,500. Decedent left a considerable estate and the allowance granted by the court was no more than necessary to support the surviving spouse in the same manner she was accustomed to in the past. Her expenditures for living expenses during the period in question have been shown to be in excess of the amount allowed. There is no evidence that the administration of the estate was prolonged for an unreasonable time in order to secure an excessive allowance. Under such circumstances we have concluded that the allowance was reasonable, and respondent's action in reducing this item is reversed.
The issue raised upon the inclusion in decedent's estate of the total value of a residence and the total amount of a bank deposit, both held by the decedent and his surviving spouse in joint tenancy at the time of his death, requires little discussion. Section 811(e)(1) and (2), as in effect at the time of decedent's death, required that there be included in the gross estate of a decedent any interest therein held as a joint tenant or as a community interest with his surviving spouse except as to any portion of such property shown to have originally belonged to such other person or to have represented compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or separate property of such spouse.
The record is devoid of any evidence as to any separate property or earnings by the decedent's surviving spouse. Respondent is sustained upon his inclusion in the gross estate of the entire values of these two items of property. Steen v. United States, 195 F.2d 379, certiorari denied 344 U.S. 822; Joseph H. Heidt, 8 T.C. 969, affd. 170 F.2d 1021.
The decree of the probate court settling the first and final account of the executors and the final distribution of the estate allowed a payment by the estate of $130 to the executors for certain incidental expenditures in connection with the transfer of assets. Respondent points to the fact that there is no itemized statement of just how this amount was expended. The estate was large and this expenditure quite small. It appears to have been made in connection with stock transfers, certification of documents, and things of this character. It was allowed by the court and the presumption is that such allowance was upon a showing that this amount was necessary to be spent in the closing of the estate. Under the circumstances we see no reason for its disallowance and respondent's action is reversed.
The final issue is upon the disallowance of $163. This appears to represent a closing fee of $150 paid the trustee of the trust here involved and $13 paid by the trustee in connection with the closing of its trust account and reimbursed to it by the executors. These payments were ones with respect to the trust estate which is not a part of decedent's estate and there are no facts disclosed which indicate in any way that the items in question represented an indebtedness of the estate. Respondent's action in disallowing these payments is sustained.
Several subordinate issues raised by the pleadings have been settled by stipulation which will be carried into effect under a recomputation of the deficiency.
Decisions will be entered under Rule 50.